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ACCFinal

Terms in this set (132)

1. The accounting profession can be divided into three major categories; specifically, the practice of public accounting, private accounting, and governmental accounting. A somewhat unique and important service of public accountants is:
a. Financial accounting.
b. Managerial accounting.
c. Auditing.
d. Cost accounting.
c. Auditing.
2. The primary private sector agency that oversees external financial reporting standards is the:
a. Financial Accounting Standards Board.
b. Federal Bureau of Investigation.
c. General Accounting Office.
d. Internal Revenue Service.
a. Financial Accounting Standards Board.
3. Which of the following equations properly represents a derivation of the fundamental accounting equation?
a. Assets + liabilities = owner's equity.
b. Assets = owner's equity.
c. Cash = assets.
d. Assets - liabilities = owner's equity.
d. Assets - liabilities = owner's equity.
4. Wilson Company owns land which cost $100,000. If a "quick sale" of the land was necessary to generate cash, the company feels it would receive only $80,000. The company continues to report the asset on the balance sheet at $100,000. This is justified under which of the following concepts?
a. The historical-cost principle.
b. The value is tied to objective and verifiable past transactions.
c. Neither of the above.
d. Both "a" and "b".
d. Both "a" and "b".
5. Retained earnings will change over time because of several factors. Which of the following factors would explain an increase in retained earnings?
a. Net loss.
b. Net income.
c. Dividends.
d. Investments by stockholders.
b. Net income.
6. Which of these items would be accounted for as an expense?
a. Repayment of a bank loan.
b. Dividends to stockholders.
c. The purchase of land.
d. Payment of the current period's rent.
d. Payment of the current period's rent.
7. Which of the following transactions would have no impact on stockholders' equity?
a. Purchase of land from the proceeds of a bank loan.
b. Dividends to stockholders.
c. Net loss.
d. Investments of cash by stockholders.
a. Purchase of land from the proceeds of a bank loan.
8. Which of the following would not be included on a balance sheet?
a. Accounts receivable.
b. Accounts payable.
c. Sales.
d. Cash.
c. Sales.
9. Remington provided the following information about its balance sheet:
Cash $ 100
Accounts receivable 500
Stockholders' equity 700
Accounts payable 200 Bank loans 1,000
Based on the information provided, how much are Remington's liabilities?
a. $200.
b. $900.
c. $1,200.
d. $1,700.
c. $1,200.
10. Gerald had beginning total stockholders' equity of $160,000. During the year, total assets increased by $240,000 and total liabilities increased by $120,000. Gerald's net income was $180,000. No additional investments were made; however, dividends did occur during the year. How much were the dividends?
a. $20,000.
b. $60,000.
c. $140,000.
d. $220,000.
b. $60,000.
11. Of the following account types, which would be increased by a debit?
a. Liabilities and expenses.
b. Assets and equity.
c. Assets and expenses.
d. Equity and revenues.
c. Assets and expenses.
12. The following comments all relate to the recording process. Which of these statements is correct?
a. The general ledger is a chronological record of transactions.
b. The general ledger is posted from transactions recorded in the general journal.
c. The trial balance provides the primary source document for recording transactions into the general journal.
d. Transposition is the transfer of information from the general journal to the general ledger.
b. The general ledger is posted from transactions recorded in the general journal.
13. The following comments each relate to the recording of journal entries. Which statement is true?
a. For any given journal entry, debits must exceed credits.
b. It is customary to record credits on the left and debits on the right.
c. The chart of accounts reveals the amount to debit and credit to the affected accounts.
d. Journalization is the process of converting transactions and events into debit/credit format.
d. Journalization is the process of converting transactions and events into debit/credit format.
14. Failure to record the receipt of a utility bill for services already received will result in:
a. An overstatement of assets.
b. An overstatement of liabilities.
c. An overstatement of equity.
d. An understatement of assets.
c. An overstatement of equity.
15. The proper journal entry to record Ransom Company's billing of clients for $500 of services rendered is:
a. Cash 500 Accounts Receivable 500
b. Accounts Receivable 500 Capital Stock 500
c. Accounts Receivable 500 Service Revenue 500
d. Cash 500 Service Revenue 500
c. Accounts Receivable 500 Service Revenue 500
16. The proper journal entry to record $1,000 of Dividends paid by Myer's Corporation is:
a. Dividends 1,000 Cash 1,000
b. Accounts Payable 1,000 Cash 1,000
c. Dividends Expense 1,000 Cash 1,000
d. Dividends Expense 1,000 Service Revenue1,000
a. Dividends 1,000 Cash 1,000
7. Lynn Lipincott invested land valued at $5,000 in her business. This transaction would be recorded by:
a. Cash 5,000 Capital Stock 5,000
b. Land 5,000 Capital Stock 5,000
c. Land 5,000 Service Revenue 5,000
d. Capital Stock 5,000 Land 5,000
b. Land 5,000 Capital Stock 5,000
8. The trial balance:
a. Is a formal financial statement.
b. Is used to prove that there are no errors in the journal or ledger.
c. Provides a listing of every account in the chart of accounts.
d. Provides a listing of the balance of each account in active use.
d. Provides a listing of the balance of each account in active use.
19. Which of the following errors will be disclosed in the preparation of a trial balance?
a. Recording transactions in the wrong account.
b. Duplication of a transaction in the accounting records.
c. Posting only the debit portion of a particular journal entry.
d. Recording the wrong amount for a transaction to both the account debited and the account credited.
c. Posting only the debit portion of a particular journal entry.
20. The basic sequence in the accounting process can best be described as:
a. Transaction, journal entry, source document, ledger account, trial balance.
b. Source document, transaction, ledger account, journal entry, trial balance.
c. Transaction, source document, journal entry, trial balance, ledger account.
d. Transaction, source document, journal entry, ledger account, trial balance.
d. Transaction, source document, journal entry, ledger account, trial balance.
21. For purposes of measuring business income, the life of a business is:
a. divided into specific points in time.
b. divided into irregular cycles.
c. divided into discrete accounting periods.
d. considered to be a continuous cycle.
c. divided into discrete accounting periods.
22. Adjusting entries at the end of an accounting period would not be required for which of the following
a. Multiperiod costs that must be split among two or more accounting periods.
b. Multiperiod revenues that must be split among two or more accounting periods.
c. Expenses that have been incurred in a given period but not as yet recorded in the accounts.
d. Revenue that has been earned and recorded in the accounting records.
d. Revenue that has been earned and recorded in the accounting records.
23. Blankenship Company pays its employees every Friday for work rendered that week. The payroll is typically $10,000 per week. Which of the following journal entries would Blankenship ordinarily record on the Friday payday?
a. Salary Expense 10,000 Salary Payable 10,000
b. Salary Expense 10,000 Cash 10,000
c. Salary Payable 10,000 Cash 10,000
d. Salary Payable 10,000 Salary Expense 10,000
b. Salary Expense 10,000 Cash 10,000
24. Blankenship Company pays its employees every Friday for work rendered that week. The payroll is typically $10,000 per week. What journal entry would be recorded (on Wednesday) if the end of the accounting period occurred on a Wednesday?
a. Salary Expense 6,000 Salary Payable 6,000
b. Salary Expense 6,000 Cash 6,000
c. Salary Payable 6,000 Cash 6,000
d. Salary Payable 6,000 Salary Expense 6,000
a. Salary Expense 6,000 Salary Payable 6,000
25. Blankenship Company pays its employees every Friday for work rendered that week. The payroll is typically $10,000 per week. Blankenship's year-end occurred on Wednesday, at which time a correct adjusting entry was recorded. On the following Friday, which of the following payroll journal entries should be recorded?
a. Salary Expense 10,000 Cash 10,000
b. Salary Expense 4,000 Salary Payable 6,000 Cash 10,000
c. Salary Expense 6,000 Salary Payable 4,000 Cash 10,000
d. Salary Payable 10,000 Cash10,000
b. Salary Expense 4,000 Salary Payable 6,000 Cash 10,000
26. The appropriate journal entry to record equipment depreciation expense would consist of a debit to Depreciation Expense and a credit to which of the following accounts?
a. Equipment
b. Accumulated Depreciation: Equipment
c. Retained Earnings
d. Cash
b. Accumulated Depreciation: Equipment
27. At the end of the current accounting period, Johnson Company failed to record utilities consumed during the period. Johnson will be billed for the utilities during the next accounting period. As a result, current period assets, liabilities, equity, and income, respectively, are:
a. Overstated, overstated, correct, correct
b. Correct, understated, overstated, overstated
c. Overstated, understated, overstated, overstated
d. Overstated, understated, correct, correct
b. Correct, understated, overstated, overstated
28. On November 1, 20X1, Limit Company purchased a one-year insurance policy for $12,000. Limit
Company debited Cash and credited Prepaid Insurance for $12,000. At the end of December, 20X1, $2,000 of insurance had expired. The journal entry to properly state all accounts involved on December 31, 20X1, would be:
a. Insurance Expense 2,000 Prepaid Insurance 22,000 Cash 24,000
b. Insurance Expense 2,000 Prepaid Insurance 2,000
c. Insurance Expense 2,000 Cash 2,000
d. Prepaid Insurance 2,000 Insurance Expense 2,000
a. Insurance Expense 2,000 Prepaid Insurance 22,000 Cash 24,000
29. Under the the income statement approach to adjusting entries, the receipt of $5,000 of unearned revenue would be recorded by debiting Cash. What account should be credited?
a. Cash
b. Revenue
c. Unearned Revenue
d. Prepaid Revenue
b. Revenue
30. Simmons Company received and recorded a $5,000 payment for services to be rendered in the future. If the income statement approach to adjusting entries is used, the appropriate adjusting entry at the end of the accounting period for $3,000 of revenue not yet earned would be:
a. Service Revenue 3,000 Unearned Service Revenue 3,000
b. Service Revenue 2,000 Unearned Service Revenue 2,000
c. Accounts Receivable 3,000 Unearned Service Revenue 3,000
d. No entry would be needed.
a. Service Revenue 3,000 Unearned Service Revenue 3,000
31. The accountant's worksheet:
a. lays the groundwork for formal financial statement preparation.
b. is a fundamental financial statement.
c. provides details necessary for full disclosure and the preparation of footnotes.
d. is prepared at the end of each operating cycle.
a. lays the groundwork for formal financial statement preparation.
32. In preparing a worksheet, a net loss would be computed and entered in the:
a. debit column of the income statement columns of the worksheet.
b. credit column of the income statement columns of the worksheet.
c. in the debit column of the adjusted trial balance.
d. in the credit column of the balance sheet columns of the worksheet.
b. credit column of the income statement columns of the worksheet.
33. Which of the following accounts would not be closed at the end of an accounting period?
a. Income Summary
b. Dividends
c. Revenue
d. Capital Stock
d. Capital Stock
34. After closing all revenue and expense accounts, Norris Company had a debit balance in its Income Summary account of $10,000. The proper entry to record the closing of the Income Summary account would be:
a. Revenue 10,000 Income Summary 10,000
b. Retained Earnings 10,000 Income Summary 10,000
c. Income Summary 10,000 Retained Earnings 10,000
d. Income Summary 10,000 Expenses 10,000
b. Retained Earnings 10,000 Income Summary 10,000
35. The following statements all pertain to the accounting cycle. Which of these statements is wrong?
a. A post-closing trial balance is prepared prior to closing temporary accounts.
b. Formal financial statements may be produced from the worksheet.
c. Adjusting entries are recorded in the journal and posted to the ledger.
d. The post-closing trial balance is prepared by examining ledger balances subsequent to the closing of accounts.
a. A post-closing trial balance is prepared prior to closing temporary accounts.
36. Which of the following statements about reversing entries is true?
a. Identical account balances are achieved in the subsequent accounting period whether reversing entries are utilized or not.
b. Reversing entries may not be used with accrued revenues.
c. Reversals are generally applied to those adjusting items that do not involve future cash flow.
a. Identical account balances are achieved in the subsequent accounting period whether reversing entries are utilized or not.
37. Shipman Company had accrued salaries of $300 on December 31. The company recorded reversing entries on the following January 1. On the next payday, January 7, the appropriate entry to record the payment of $1,000 in salaries should include:
a. a debit to Salaries Expense of $1,000.
b. a debit to Salaries Expense of $700.
c. a debit to Salaries Expense of $1,300.
d. a debit to Salaries Payable for $300.
a. a debit to Salaries Expense of $1,000.
38. Current assets are those assets which management intends to convert into cash or consume within:
a. The operating cycle
b. One year
c. The longer of (a) or (b)
d. The shorter of (a) or (b)
c. The longer of (a) or (b)
39. On a classified balance sheet, the appropriate ordering of specific classifications is:
a. Current assets; long-term investments; property, plant, and equipment; intangible assets; other assets.
b. Current assets; property, plant, and equipment; long-term investments; intangible assets; other assets.
c. Current assets; intangible assets; property, plant, and equipment; long-term investments; other assets.
d. Current assets; other assets; long-term investments; intangible assets; property, plant, and equipment.
a. Current assets; long-term investments; property, plant, and equipment; intangible assets; other assets.
40. If a company had a current ratio of 0.5, then which of the following statements regarding that company's working capital would be true?
a. The company's working capital would be positive.
b. The company's working capital would be zero.
c. The company's working capital would be negative.
d. The company's working capital would be 2:1.
c. The company's working capital would be negative.
41. The Sales account and Purchases account should include:
a. only cash sales and cash purchases of merchandise.
b. only credit sales and credit purchases of merchandise.
c. both cash and credit sales and cash and credit purchases of merchandise.
d. not only merchandise transactions, but also purchases and sales of other assets used in the business.
c. both cash and credit sales and cash and credit purchases of merchandise.
42. Purchasers of merchandise may be dissatisfied with the quality of goods purchased on account, and return the goods to the seller with an indication that payment will not be forthcoming. In such case, the document prepared by the purchaser is called:
a. a debit memorandum.
b. a credit memorandum.
c. a receiving report.
d. an invoice.
a. a debit memorandum.
43. Bergstrom accepted the return of merchandise by a customer. The merchandise had been sold on account, and payment had not been received on the date of return. The returned goods retailed for $400, but cost Bergstrom only $300. The appropriate journal entry for Bergstrom is:
a. Accounts Receivable 400 Sales Returns & Allowances 400
b. Sales Returns & Allowances 400 Accounts Receivable 400
c. Sales 400 Purchases 300 Accounts Receivable 100
d. Sales Returns & Allowances 400 Purchases 300 Accounts Receivable 100
b. Sales Returns & Allowances 400 Accounts Receivable 400
44. Which of the following statements is true?
a. Cash discounts are used to reduce the invoice price below the stated list price.
b. The expression 2/30, n/60, means that a 2% cash discount is available if the invoice is paid within 30 to 60 days.
c. Cash discounts may not be used in conjunction with trade discounts.
d. Cash discounts normally apply to the invoice price of the merchandise, excluding freight charges.
d. Cash discounts normally apply to the invoice price of the merchandise, excluding freight charges.
45. Lux had net purchases of $50,000, ending inventory of $25,000, net sales of $100,000, and gross profit of $32,000. How much was Lux's beginning inventory?
a. $7,000
b. $43,000
c. $93,000
d. $143,000
b. $43,000
46. On February 1, Crown Company purchased $2,000 of merchandise, terms 2/10, n/30. Crown uses the gross method of recording purchases. Payment of the accounts payable was made on February 26. Which of the following journal entries is appropriate for the February 26 transaction?
a. Purchases 2,000 Accounts Payable 2,000
b. Accounts Payable 1,960 Cash 1,960
c. Accounts Payable 1,960 Purchases Discounts Lost 40 Cash 2,000
d. Accounts Payable 2,000 Cash 2,000
d. Accounts Payable 2,000 Cash 2,000
47. On March 1, Zekew Company purchased $1,000 of merchandise, terms 1/10, n/30. Zekew uses the net method of recording purchases. Payment of the accounts payable was made on March 4. Which of the following journal entries is appropriate for the March 4 transaction?
a. Purchases 990 Cash 990
b. Accounts Payable 990 Cash 990
c. Accounts Payable 1,000 Purchases Discounts 10 Cash 990
d. Accounts Payable 1,000 Cash 1,000
b. Accounts Payable 990 Cash 990
48. Dodd Company utilizes the periodic inventory accounting system. Dodd had beginning inventory of $59,000, ending inventory of $37,000, and net purchases of $123,000. Which of the following components should be included in the year-end closing entries prepared by Dodd?
a. Purchases 123,000
Inventory 123,000
b. Income Summary 37,000
Inventory 37,000
c. Income Summary 59,000
Inventory 59,000
d. All of the above
c. Income Summary 59,000
Inventory 59,000
49. Russell Merchandising uses the perpetual inventory system. Which of the following statements is correct?
a. When Russell records a sale, it should also debit inventory.
b. When Russell records a sale, it should also credit inventory.
c. When Russell records a sale, it should also credit cost of goods sold.
d. When Russell records a sale, it should also debit cost of goods available for sale.
b. When Russell records a sale, it should also credit inventory.
50. A multiple-step income statement is thought to be more beneficial to financial users because of the revelation of important relationships. Which of the following is not separately identified on a multiple-step income statement?
a. Gross profit
b. Net income
c. Income taxes
d. Total costs and expenses
d. Total costs and expenses
51. The Cash account on the balance sheet should not include which of the following items?
a. Travel advances to employees
b. Currency
c. Money orders
d. Deposits in transit
a. Travel advances to employees
52. A credit memorandum accompanying a bank statement would occur for which of the following items?
a. A previously deposited customer check which was returned NSF.
b. Bank service charges for the month.
c. The proceeds of a note collected by the bank are deposited to the account.
d. Each of the above.
c. The proceeds of a note collected by the bank are deposited to the account.
53. When reconciling the ending cash balance per the bank statement to the correct adjusted cash balance, how would deposits in transit be handled?
a. Added to the balance per the bank statement.
b. Subtracted from the balance per the bank statement.
c. Added to the balance per company records.
d. Ignored.
a. Added to the balance per the bank statement.
54. A bank reconciliation sometimes points to the need for adjusting entries. In general, the source of the adjustments is:
a. the reconciliation of the ending balance per the bank statement to the adjusted cash balance.
b. the reconciliation of the cash balance per the company records to the adjusted cash balance.
c. both a and b.
d. none of the above.
b. the reconciliation of the cash balance per the company records to the adjusted cash balance.
55. Malory Company provides the following information about the month-end bank reconciliation:
Ending cash per bank statement
$1,367
Ending cash per company records
7,383
Monthly bank service charge
25
Deposits in transit at month-end
8,345
Outstanding checks at month-end
2,399
Customer check returned NSF
45
The correct ending cash balance is:
a. $4,914
b. $7,268
c. $7,313
d. $7,383
c. $7,313
56. Malory Company provides the following information about the month-end bank reconciliation:
Ending cash per bank statement
$1,367
Ending cash per company records
7,383
Monthly bank service charge
25
Deposits in transit at month-end
8,345
Outstanding checks at month-end
2,399
Customer check returned NSF
45
What journal entry should be recorded to cause the company records to be correct?
a. Cash 70 Cash Short & Over 70
b. Miscellaneous Expense 70 Cash 70
c. Miscellaneous Expense 25 Accounts Receivable 45 Cash 70
d. Miscellaneous Expense 2,399 Cash 2,399
c. Miscellaneous Expense 25 Accounts Receivable 45 Cash 70
57. When using a petty cash system, the replenishment of the fund would normally include a debit to:
a. Cash.
b. Petty Cash.
c. Revenues.
d. None of the above.
d. None of the above.
58. The trading securities owned by a company are:
a. reported on the balance sheet as a current asset.
b. reported on the balance sheet as a noncurrent asset.
c. reported on the balance sheet as a contra-equity account.
d. reported on the balance sheet as a reduction of liabilities.
a. reported on the balance sheet as a current asset.
59. During its first year of operation, Lenton Company acquired three investments in trading securities. Investment A cost $50,000 and had a year-end market value of $60,000. Investment B cost $35,000 and had a year-end market value of $17,000. Investment C cost $26,000 and had a year-end market value of $24,000. What amount should be reported as a charge against income in Lenton's income statement for the first year of operation?
a. $0
b. $10,000
c. $20,000
d. $30,000
b. $10,000
60. During its first year of operation, Lenton Company acquired three investments in trading securities. Investment A cost $50,000 and had a year-end market value of $60,000. Investment B cost $35,000 and had a year-end market value of $17,000. Investment C cost $26,000 and had a year-end market value of $24,000. The journal entry to record the decline in market value would include:
a. a debit to Unrealized Loss on Trading Securities.
b. a credit to Unrealized Gain on Trading Securities.
c. a debit to Trading Securities.
d. At least two of the above.
a. a debit to Unrealized Loss on Trading Securities.
61. Trade accounts receivable:
a. arise from the sale of a company's products or services.
b. are reported in the noncurrent asset section of the balance sheet.
c. include deposits with utilities.
d. generally comprise the minority of the total receivables balance.
a. arise from the sale of a company's products or services.
62. Lundstrom Company began making sales on credit during 20X1. The company used the direct write-off method for uncollectible accounts. A material amount of uncollectible accounts resulting from sales made during 20X1 were written off during 20X2. What was the effect of this write-off on net income for 20X1 and 20X2?
20X1 20X2
a. Overstate Overstate
b. Overstate Understate
c. Understate Overstate
d. Understate Understate
b. Overstate Understate
63. Taylor Company uses the direct write-off method of recording uncollectible accounts receivable. Recently, a customer informed Taylor that he would be unable to pay $300 owed to Taylor. Taylor's proper journal entry to reflect this event would be:
a. Uncollectible Accounts Expense 300 Allow. for Uncollectible Accounts 300
b. Allow. for Uncollectible Accounts 300
Accounts Receivable 300
c. Uncollectible Accounts Expense 300
Accounts Receivable 300
d. Sales 300
Accounts Receivable 300
c. Uncollectible Accounts Expense 300
Accounts Receivable 300
4. Malcom's financial statements revealed uncollectible accounts expense of $8,000, accounts receivable of $140,000, and allowance for uncollectible accounts of $12,000. The net realizable value of Malcom's accounts receivable is:
a. $128,000
b. $132,000
c. $136,000
d. $152,000
a. $128,000
5. Branz Company had credit sales during the current year which amounted to $700,000. Historically, 3% of credit sales are uncollectible. If Branz uses the allowance method of recording uncollectible accounts, a proper journal entry for the year would be:
a. Accounts Receivable 21,000
Allow. for Uncollectible Accounts 21,000
b. Uncollectible Accounts Expense 21,000
Accounts Receivable 21,000
c. Uncollectible Accounts Expense 21,000
Allow. for Uncollectible Accounts 21,000
d. Allow. for Uncollectible Accounts 21,000
Accounts Receivable 21,000
c. Uncollectible Accounts Expense 21,000
Allow. for Uncollectible Accounts 21,000
6. Lindy Company uses an allowance method to account for bad debts. Lindy estimates that 5% of the outstanding accounts receivable will be uncollectible. At the end of the year, Lindy has outstanding accounts receivable of $750,000, and a debit balance in the Allowance for Uncollectible Accounts of $9,000. Lindy should record uncollectible accounts expense of:
a. $28,500
b. $37,500
c. $46,500
d. $55,500
c. $46,500
7. Flynn Company uses an allowance method for recording uncollectibles. Flynn determined that $4,000 due from Mitchell will not be collected. The entry Flynn should record to write off the Mitchell account is: a. Uncollectible Accounts Expense 4,000
Accounts Receivable 4,000
b. Sales 4,000
Accounts Receivable 4,000
c. Uncollectible Accounts Expense 4,000 Allowance for Uncollectible Accounts 4,000
d. Allowance for Uncollectible Accounts 4,000
Accounts Receivable 4,000
d. Allowance for Uncollectible Accounts 4,000
Accounts Receivable 4,000
8. John Company uses an allowance method for recording uncollectible receivables. John was notified by Paul that payment on a $1,000 receivable would be forthcoming. John had previously written off the receivable from Paul. The proper journal entry for John to record to reinstate the receivable into the accounts is:
a. Accounts Receivable 1,000 Allow. for Uncollectible Accounts 1,000
b. Allow. for Uncollectible Accounts 1,000
Sales 1,000
c. Accounts Receivable 1,000
Sales 1,000
d. Accounts Receivable 1,000
Uncollectible Accounts Expense 1,000
a. Accounts Receivable 1,000 Allow. for Uncollectible Accounts 1,000
9. Interest on a loan may be computed by which of the following formulas?
a. (principal x rate)/time
b. (principal x rate x time)
c. (principal x time)/rate
d. (principal x time)/time
b. (principal x rate x time)
70. Vivian Howell is the payee of $10,000, 180-day, 8% note. At maturity, the maker failed to pay. How much interest income should Vivian recognize on the dishonored note?
a. $0
b. $400
c. $800
d. $10,800
b. $400
71. Inventory accounts should be classified in which section of a balance sheet?
a. Current assets
b. Investments
c. Property, plant, and equipment
d. Intangible assets
a. Current assets
72. Ritz Company agreed to purchase certain inventory items from Hostess Corporation. Hostess shipped the goods F.O.B. destination. On December 31, Ritz's accounting year-end, Ritz was aware that the goods had been shipped and would be received any day.
a. Ritz should include the goods in its inventory calculated on December 31.
b. Ritz should include the goods in its inventory calculated on December 31, but should not record the obligation to pay for them.
c. Ritz should not include the goods in its inventory calculated on December 31, but should include the related payable on its balance sheet at December 31.
d. Ritz should not include the goods in its inventory calculated on December 31, and should not include the related payable on its balance sheet at December 31.
d. Ritz should not include the goods in its inventory calculated on December 31, and should not include the related payable on its balance sheet at December 31.
73. Hefty Company wants to know the effect of different inventory methods on financial statements. Given below is information about beginning inventory and purchases for the current year.
January 2
Beginning Inventory
500 units at $3.00
April 7
Purchased
1,100 units at $3.20
June 30
Purchased
400 units at $4.00
December 7
Purchased
1,600 units at $4.40
Sales during the year were 2,700 units at $5.00. If Hefty used the first-in, first-out method, ending inventory would be:
a. $2,780
b. $3,960
c. $9,700
d. $10,880
b. $3,960
74. Hefty Company wants to know the effect of different inventory methods on financial statements. Given below is information about beginning inventory and purchases for the current year.
January 2
Beginning Inventory
500 units at $3.00
April 7
Purchased
1,100 units at $3.20
June 30
Purchased
400 units at $4.00
December 7
Purchased
1,600 units at $4.40
Sales during the year were 2,700 units at $5.00. If Hefty used the periodic LIFO method, cost of goods sold would be:
a. $2,780
b. $3,960
c. $9,700
d. $10,880
d. $10,880
75. Hefty Company wants to know the effect of different inventory methods on financial statements. Given below is information about beginning inventory and purchases for the current year.
January 2
Beginning Inventory
500 units at $3.00
April 7
Purchased
1,100 units at $3.20
June 30
Purchased
400 units at $4.00
December 7
Purchased
1,600 units at $4.40
Sales during the year were 2,700 units at $5.00. If Hefty used the weighted-average method, gross profit would be:
a. $3,255
b. $3,415
c. $10,245
d. $13,500
a. $3,255
76. Which of the following inventory methods will always produce the same results under both a periodic and perpetual system?
a. FIFO
b. LIFO
c. Average
d. All of these
a. FIFO
77. An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the ending inventory valuation is:
a. FIFO
b. LIFO
c. Retail
d. Weighted-average
a. FIFO
78. Bernstein Corporation recently experienced a fire which destroyed all of its inventory. The following data have been reconstructed from partial accounting information, and pertain to the year up to the date of the fire.
Beginning inventory
$20,000
Net purchases
$45,000
Sales
$80,000
Gross profit rate
40%
Using the gross profit method, estimate the dollar amount of inventory which was destroyed in the fire.
a. $17,000
b. $33,000
c. $48,000
d. $65,000
a. $17,000
79. Gerber Department Store utilizes the retail inventory method. Gerber's beginning inventory cost
$140,000 and retailed for $280,000. Purchases for the period amounted to $390,000 and were priced to sell at twice that amount. Sales for the period, all at normal retail, were $600,000. How much is the cost of Gerber's estimated ending inventory?
a. $115,000
b. $150,000
c. $230,000
d. $300,000
c. $230,000
80. Wonder Corporation failed to record the purchase of merchandise on account. The merchandise and related accounts payable should have been recorded but were not. What is the effect of these errors on assets, liabilities, retained earnings, and net income, respectively?
a. Understated, understated, no effect, no effect
b. Understated, understated, understated, understated
c. Understated, overstated, overstated, understated
d. Overstated, overstated, understated, overstated
a. Understated, understated, no effect, no effect
81. Which of the following categories/methods would be used to account for an investment, where the intent of the investment was primarily for short-term profits?
a. Trading securities
b. Available for sale securities
c. Held to maturity securities
d. Equity method
a. Trading securities
82. Ace Corporation has a long-term investment in the common stock of another entity. This investment is accounted for as an available-for-sale security. A journal entry to record a $10,000 decline in market value below cost would necessarily involve:
a. a debit to Unrealized Gain/Loss -- OCI
b. a credit to Unrealized Gain/Loss -- OCI
c. a debit to Available for Sale Securities.
d. a debit to Investment Revenue.
a. a debit to Unrealized Gain/Loss -- OCI
83. Investment in Bonds should be disclosed on the balance sheet.
a. At their face value minus any unamortized premiums.
b. At their face value plus any unamortized premiums.
c. At their maturity value.
d. At their face value.
b. At their face value plus any unamortized premiums.
84. When the contract interest rate for a bond exceeds the effective interest rate of the bond, then:
a. The price of the bond will be equal to the future cash flow associated with the bond.
b. The bond will be issued at a premium.
c. The bond will be issued at a discount.
The face value of the bond will fluctuate over its life.
b. The bond will be issued at a premium.
85. On June 1, Pennell Corporation purchased $100,000 of 9%, 5-year bonds. The bonds are dated June 1, 20X1. The bonds were issued at 96, and pay interest on December 1 and June 1. The entry to record the investment in bonds is:
a. Investment in Bonds 100,000
Cash 100,000
b. Investment in Bonds 96,000
Cash 96,000
c. Investment in Bonds 104,000
Cash 104,000
d. Investment in Bonds 96,000
Interest Income 4,000
Cash 100,000
b. Investment in Bonds 96,000
Cash 96,000
86. On April 1, 20X1, Collinge Corporation purchased $100,000 of 7%, 5-year bonds dated April 1, 20X1, at 101. Interest is paid on March 31 and September 30. Assuming use of the straight-line amortization method, the proper amount of income to record on September 30, 20X1 is:
a. $7,000
b. $3,400
c. $3,500
d. $3,600
b. $3,400
87. On January 1, 20X2, Miller Corporation purchased $100,000 of 5%, 10-year bonds dated January 1, 20X2, at 98. Interest is paid on June 30 and December 31 of each year. Assuming use of the straight-line amortization method, the proper amount to report for Investment in Bonds at December 31, 20X3 is:
a. $98,000
b. $98,400
c. $100,000
d. $101,600
b. $98,400
88. Investor Corporation owns 30% of Investee Corporation. Investee had net earnings of $100,000 during the year and paid dividends of $30,000. Investor's Investment in Investee account contained a $70,000 balance at the beginning of the year. What would be the correct balance of this account at the end of the year?
a. $70,000
b. $91,000
c. $100,000
d. $140,000
b. $91,000
89. Investor Corporation owns 30% of Investee Corporation. Investee had net earnings of $100,000 during the year and paid dividends of $30,000. Investor's Investment in Investee account contained a $70,000 balance at the beginning of the year. How much dividend income will Investor record?
a. $0
b. $9,000
c. $30,000
d. $39,000
a. $0
90. Mega Corporation owns 100% of Wolf Corporation's stock. Mega paid $1,000,000 for its
investment. At the time of the initial investment, Wolf had total stockholders' equity of $600,000. All of Wolf's assets and liabilities were carried at amounts that equaled their fair value, except for a building that was undervalued by $100,000. How much goodwill would you anticipate finding in the consolidated balance sheet?
a. $0
b. $100,000
c. $300,000
d. $400,000
c. $300,000
91. Which of the following items should be expensed as incurred?
a. Broker's fees on the purchase of a long-lived asset.
b. Repair of damage occurring during installation of new equipment.
c. Freight charges on the purchase of equipment.
d. Normal installation fees on the purchase of equipment.
b. Repair of damage occurring during installation of new equipment.
92. Lancer Corporation purchased a parcel of land as a factory site for $150,000. Construction began immediately on a new building. Costs incurred are as follows:
Architect's fees
25,000
Legal fees for land purchase contract
2,000
Construction costs
250,000
Lancer should record the cost of the new land and building, respectively, at:
a. $150,000 and $275,000
b. $152,000 and $275,000
c. $150,000 and $250,000
d. $152,000 and $250,000
b. $152,000 and $275,000
93. Reno Acquisitions Company recently bought a furnished hotel for a lump-sum purchase price of $15,000,000. Separately, the land was valued at $6,000,000, the building at $12,000,000, and the furniture and equipment at $2,000,000. How much cost should Reno assign to the land?

a. $1,000,000
b. $4,500,000
c. $6,000,000
d. $8,000,000
b. $4,500,000
94. The appropriate journal entry to record machinery depreciation of $1,000 is:
a. Depreciation Expense 1,000 Accumulated Depreciation 1,000
b. Depreciation Expense 1,000
Machine 1,000
c. Accumulated Depreciation 1,000 Depreciation Expense 1,000
d. Accumulated Depreciation 1,000
Machine 1,000
a. Depreciation Expense 1,000 Accumulated Depreciation 1,000
95. Omni Corporation purchased a new vehicle on January 1, 20X1. The vehicle cost $100,000, has a fiveyear life, and a $20,000 residual value. Omni has a December 31 year-end. If Omni depreciates the truck by the double-declining balance method, how much should be recorded as depreciation expense during 20X4?
a. $0
b. $1,600
c. $8,640
d. $40,000
b. $1,600
96. Realistic Company purchased a new truck on January 1, 20X1. The truck cost
$20,000, has a four-year life, and a $4,000 residual value. The company has a December 31 year-end. If Realistic Company depreciates the truck by the straight-line method, how much should Realistic report as the book value of the truck at the end of 20X3?
a. $1,600
b. $4,000
c. $8,000
d. $16,000
c. $8,000
97. On July 1, 20X1, Clem Company purchased factory equipment for $50,000. Residual value was estimated to be $2,000. The equipment will be depreciated over ten years using the double-declining-balance depreciation method. Clem has a December 31 year-end, and during 20X1, one-half of a year's depreciation expense was recorded. How much depreciation expense should be recorded for 20X2? (round computations to the nearest dollar)
a. $4,320
b. $5,000
c. $8,640
d. $9,000
d. $9,000
98. A graph is set up with "depreciation expense" on the vertical axis and "time" on the horizontal axis. Assuming linear relationships, how would the lines for straight-line and double-declining-balance depreciation expense, respectively, be drawn on this graph?

a. Vertically and sloping down to the right.
b. Vertically and sloping up to the right.
c. Horizontally and sloping down to the right.
d. Horizontally and sloping up to the right.
c. Horizontally and sloping down to the right.
99. On July 1, 20X1, Robinson Company purchased a new machine for $200,000. The machine is estimated to have a service-life of 10 years with an estimated residual value of $5,000. Robinson uses straight-line depreciation. During 20X5, it became apparent that the machine would not be efficient to operate after December 31, 20X7. Furthermore, the machine would have no scrap value. How much should be charged to depreciation expense in 20X5 under generally accepted accounting principles? (round computations to the nearest dollar)
a. $19,500
b. $42,250
c. $43,917
d. $65,000
c. $43,917
100. Assume that the modified accelerated cost recovery system is used to account for a depreciable asset for tax purposes. In general, which of the following observations is correct?
a. Depreciation amounts will be the same for financial reporting purposes.
b. In the early years of an asset's life, depreciation will be greater for tax than for financial reporting purposes.
c. In the early years of an asset's life, depreciation will be less for tax than for financial reporting purposes.
d. The tax life will exceed the financial reporting life.
b. In the early years of an asset's life, depreciation will be greater for tax than for financial reporting purposes.
101. Cross Country Trucking Company recently replaced the oil filter on one of its cross country rigs. How should one account for this cost?
a. As a repair and maintenance expense.
b. As an increase in the cost of the truck.
c. As a reduction in accumulated depreciation associated with the truck.
d. As an intangible asset.
a. As a repair and maintenance expense.
102. On January 1, 20X2, Lynn Corporation purchased a machine for $100,000. Lynn paid shipping expenses of $1,000 as well as installation costs of $2,400. The machine was estimated to have a useful life of ten years and an estimated salvage value of $6,000. In January 20X3, additions costing $7,200 were made to the machine. These additions significantly improved the quality of output, but did not change the life or salvage value of the machine. If Lynn records depreciation under the straight-line method, depreciation expense for 20X3 is:

a. $9,740
b. $10,340
c. $10,540
d. $11,140
c. $10,540
103. If an asset is impaired, and future cash flows will not allow recovery of the recorded amount, then the firm should reduce the asset in the accounts. In addition,

a. a loss should be recognized.
b. an intangible asset should be recorded.
c. the asset should be discarded.
d. depreciation should cease.
a. a loss should be recognized.
104. A machine that cost $18,000, with a book value of $4,000, is sold for $3,400. Which of the following is true concerning the journal entry to record the sale?
a. Accumulated Depreciation is debited for $4,000.
b. Machinery is credited for $4,000.
c. Loss on sale of machinery is credited for $600.
d. Accumulated Depreciation is debited for $14,000.
d. Accumulated Depreciation is debited for $14,000.
105. The sale of a depreciable asset resulting in a loss indicates that the proceeds from the sale were:

a. Less than current market value.
b. Greater than cost.
c. Greater than book value.
d. Less than book value.
d. Less than book value.
106. Equipment costing $3,000 with accumulated depreciation of $2,125 is exchanged for another asset with a fair value of $625. The exchange has commercial substance. How much is the gain or loss on this transaction?

a. A gain of $250 should be recognized.
b. A loss of $250 should be recognized.
c. A loss of $500 should be recognized.
d.No gain or loss should be recognized.
b. A loss of $250 should be recognized.
107. Deep Gold Mining Company recognizes $4 of depletion for each ton of ore mined. This year, 300,000 tons of ore were mined but only 180,000 were sold. The amount of depletion which should be deducted from revenue this year is:
a. $0
b. $480,000
c. $720,000
d. $1,200,000
c. $720,000
108. Which of the following terms best relates to natural resources?

a. Depreciation.
b. Depletion.
c. Amortization.
d. Accrual.
b. Depletion.
109. On January 5, 20X1, a corporation was granted a patent on a product. On January 2, 20X9, to protect its patent, the corporation purchased a patent on a competing idea that was originally issued on January 10, 20X5. Because of its unique nature, the corporation does not feel the competing patent can be used in producing a product. The cost of the competing patent should be:

a. Amortized over a maximum period of 20 years.
b. Amortized over a maximum period of 13 years.
c. Amortized over a maximum period of 12 years.
d. Expensed in 20X9.
c. Amortized over a maximum period of 12 years.
110. Which of the following statements regarding goodwill is false?
a. The difference between the price paid to purchase a particular company, and the fair value of the underlying identifiable assets received (less liabilities assumed) is goodwill.
b. Goodwill should not be amortized, but should be evaluated for impairment.
c. Goodwill is an intangible asset.
d. Goodwill may be recorded for a company whether it is internally generated or purchased.
d. Goodwill may be recorded for a company whether it is internally generated or purchased.
111. Typical current liabilities include:
a. Prepayments by customers.
b. Travel advances to employees.
c. The principal portion of a mortgage note that is due beyond one year or the operating cycle, whichever is longer.
d. Accumulated depreciation.
a. Prepayments by customers
112. Contingent liabilities should be recorded in the accounts when:
a. It is probable that the future event will occur.
b. The amount of the liability can be reasonably estimated.
c. Both (a) and (b).
d. Either (a) or (b).
c. Both (a) and (b).
113. On June 1, Whit Corporation purchased a truck for $30,000. To pay for the truck, Whit issued and recorded a six-month note payable for $31,500. No other entry was recorded for the note until payment on December 1. The journal entry to record payment of the note would include:
a. A debit to Interest Expense for $1,500.
b. A debit to Discount on Notes Payable for $1,500.
c. A debit to Notes Payable for $30,000.
A debit to Cash for $31,500.
a. A debit to Interest Expense for $1,500.
114. The Discount on Notes Payable:
a. Is a contra liability account.
b. Is a contingent liability account.
c. Should be reported as an asset because of its debit balance.
Is amortized to reduce interest expense over the life of the note payable.
a. Is a contra liability account.
115. If the journal entry to record an accrued liability were accidentally recorded twice, it would:
a. Understate income for the year.
b. Overstate income for the year.
c. Have no effect on income for the year.
Understate accrued liabilities at the end of the year.
a. Understate income for the year.
116. Landry paid $5,000 cash for warranty service work. If a Warranty Liability account had been previously established, the proper journal entry to record the service work would be:

a. Sales 5,000
Cash 5,000
b. Warranty Expense 5,000
Warranty Liability 5,000
c. Warranty Expense 5,000
Cash 5,000
d. Warranty Liability 5,000
Cash 5,000
d. Warranty Liability 5,000
Cash 5,000
117. The employee's withholding allowance certificate is popularly referred to as a:

a. W-2.
b. W-4.
c. Form 1040.
d. Payroll register.
b. W-4.
118. The FICA tax is levied on:

a. Employees only.
b. Employers only.
c. Both employees and employers.
d. Earnings in excess of base amounts.
c. Both employees and employers.
119. Burgundy Drug Store paid $137,000 in salaries during 20X1. Salary expense for the year was $148,500 and salaries payable at the end of 20X1 amounted to $17,300. What was the amount of salaries payable as of January 1, 20X1?
a. $5,800
b. $11,500
c. $17,300
d. $28,800
a. $5,800
120. The gross payroll for Zurich Corporation was $100,000. Federal income tax withheld from employee paychecks amounted to $24,000, state income tax withheld amounted to $3,000, Social Security amounted to $8,500 (both the employee and employer portion), and Medicare amounted to $3,500 (both the employee and employer portion). Furthermore, employees elected to have $1,000 of insurance and charitable contributions withheld from their paychecks. How much was net pay?
a. $34,000
b. $60,000
c. $66,000
d. $72,000
c. $66,000
121. The present value factor at 8% for one period is 0.92593, for two periods is 0.85734, for three periods is 0.79383, for four periods is 0.73503, and for five periods is 0.68058. Given these factors, what amount should be deposited in a bank today to grow to $100 three years from now?
a. $100/0.79383
b. $100/(0.92593/3)
c. ($100/0.92593 + $100/0.85734 + $100/0.79383)
d. $100 X 0.79383
d. $100 X 0.79383
122. You are thinking of borrowing $250,000 to buy a new house. If you are going to finance this purchase at 12% interest per annum, and make 360 level monthly payments to pay off the loan, how much will your payments be?
a. $250,000/360
b. $250,000/present value factor for lump sum at 360 months and 1% per period
c. $250,000/present value factor for annuity of 360 months at 1% per period
d. $250,000 X present value factor for annuity of 360 months at 1% per period
c. $250,000/present value factor for annuity of 360 months at 1% per period
123. Assume that Kamchatny Vladimir borrowed $100,000 on January 1 of Year 1, at 5% interest per annum. On December 31, of Year 1, an $8,000 payment is made. On December 31, of year 2, another $8,000 payment is made. Using normal assumptions about interest and principal reduction, how much is the unpaid balance of Vladimir's loan after the second payment?
a. $100,000
b. $94,000
c. $93,850
d. 84,000
c. $93,850
124. Bonds payable should be disclosed on the balance sheet.
a. At their face value minus any unamortized premiums.
b. At their face value plus any unamortized premiums.
c. At their maturity value.
d. At their face value.
b. At their face value plus any unamortized premiums.
125. When the contract interest rate for a bond exceeds the effective interest rate of the bond, then:
a. The price of the bond will be equal to the future cash flow associated with the bond.
b. The bond will be issued at a premium.
c. The bond will be issued at a discount.
d. The face value of the bond will fluctuate over its life.
b. The bond will be issued at a premium.
126. On June 1, Surge Corporation issued $100,000 of 9%, 5-year bonds. The bonds are dated June 1, 20X1. The bonds were issued at 96, and pay interest on December 1 and June 1. The entry to record issuance of the bonds is:
a. Cash 100,000
Bonds Payable 100,000
b. Cash 96,000
Discount on Bonds Payable 4,000 Bonds Payable 100,000
c. Cash 104,000
Bond Interest Payable 4,000 Bonds Payable 100,000
d. Cash 96,000
Bond Interest Expense 4,000
Bonds Payable100,000
b. Cash 96,000
Discount on Bonds Payable 4,000 Bonds Payable 100,000
127. On April 1, 20X1, German Corporation issued $100,000 of 7%, 5-year bonds dated April 1, 20X1, at 101. Interest is paid on March 31 and September 30. The proper entries to record bond interest expense for the (entire) year ended 20X1 would include a decrease in interest expense for premium amortization in the amount of (round to the nearest dollar and assume straight-line amortization):
a. $0
b. $117
c. $150
d. $200
c. $150
128. Jeske Company issued $1,000,000 of 8% bonds at a time when the market rate of interest was 10%. If the bonds were issued at a $50,000 discount and interest was paid annually, how much was interest expense for the first full year of the bond issue (utilize the effective-interest amortization technique)?
a. $76,000
b. $80,000
c. $95,000
d. $100,000
c. $95,000
129. When interest payment dates on a bond are June 1 and December 1, and the bond is sold on July 1, the amount of cash received at issuance will be:
a. Decreased by accrued interest from July 1 to December 1.
b. Decreased by accrued interest from June 1 to July 1.
c. Increased by accrued interest from July 1 to December 1.
d. Increased by accrued interest from June 1 to July 1.
d. Increased by accrued interest from June 1 to July 1.
130. Billings Corporation retired $1,000,000 face of bonds payable. At the time of the retirement, the bonds had unamortized discount of $20,000, and all interest accruals and payments were current. Under the outstanding covenants, Billings was required to pay the bond holders 103.
a. The transaction caused Billings to recognize a loss of $50,000.
b. The transaction caused Billings to recognize a gain of $50,000.
c. The transaction caused Billings to recognize a loss of $30,000.
The transaction caused Billings to recognize a gain of $20,000.
a. The transaction caused Billings to recognize a loss of $50,000.
131. Which of the following characteristics is considered to be an advantage of the corporate form of organization?
a. Avoidance of double taxation
b. Limited liability of stockholders
c. Low level of regulation
d. The absence of a perpetual existence
b. Limited liability of stockholders
132. Of the following characteristics, which is not generally regarded as a right of common shareholders?
a. Preemptive right
b. Voting rights
c. Preference in liquidation
d. Transferability of shares
c. Preference in liquidation
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